Authors:Moschini G; Lapan H, Kim H.Pages: 1117 - 1142Abstract: We construct a tractable multi-market equilibrium model designed to evaluate alternative biofuel policies. The model integrates the U.S. agricultural sector with the energy sector and it explicitly considers both U.S. ethanol and biodiesel production. The model provides a structural representation of the renewable fuel standard (RFS) policies, and it uses the arbitrage conditions defining the core value of renewable identification number prices to identify the relevant competitive equilibrium conditions. The model is parameterized, based on elasticities and technical coefficients from the literature, to represent observed 2015 data. The model is simulated to analyze alternative scenarios, including repeal of the RFS, projected 2022 RFS mandates, and optimal (second-best) mandates. The results confirm that the current RFS program considerably benefits the agriculture sector, but also leads to overall welfare gains for the United States (mostly via beneficial terms of trade effects). Implementation of projected 2022 mandates, which would require further expansion of biodiesel production, would lead to a considerable welfare loss (relative to 2015 mandate levels). Constrained (second-best) optimal mandates would entail more corn-based ethanol and less biodiesel than currently mandated.PubDate: 2017-09-02DOI: 10.1093/ajae/aax041Issue No:Vol. 99, No. 5 (2017)

Authors:Just DR.Pages: 1143 - 1145Abstract: Moschini, Lapan, and Kim (2017) analyze the potential impacts of U.S. biofuel policies using an integrated model of ethanol, biodiesel, crude oil, transportation, corn, and soybeans markets that allows for international terms-of-trade impacts in crop and crude oil markets. These authors’ approach extends the work of Cui etal. (2011), building on partial equilibrium models that sought only to take account of pairs of these markets (e.g., de Gorter and Just 2009b; Lapan and Moschini 2012). Moschini, Lapan, and Kim (2017) assume competitive markets in grains, oilseed, oil, and transportation fuels of all stripes. These authors also include a fully endogenized market for Renewable Identification Numbers (RINs; the tradeable record of biofuel production that is used to demonstrate compliance with the various mandates that have been implemented as part of the Renewable Fuel Standard [RFS]). Importantly, the RFS imposes a hierarchical series of mandates based on the type of biofuel and the greenhouse gas emissions reduction compared to the fossil fuel being displaced. Biofuels that meet certain emissions standards can be used to fill both mandates for advanced biofuels and conventional biofuels. Those that do not meet these strict standards can only fulfill the mandates for conventional biofuels. This nesting relationship is difficult to embody in a conventional economic model (see Korting and Just 2017). For tractability, the authors approach this nesting relationship by assuming a particular fuel is the marginal fuel (e.g., biodiesel for the advanced biofuel mandate).PubDate: 2017-09-06DOI: 10.1093/ajae/aax054Issue No:Vol. 99, No. 5 (2017)

Authors:Moschini G; Lapan H, Kim H.Pages: 1146 - 1147Abstract: We thank David Just for his concise discussion of the main results of our article and his generous assessment of our work. We agree with much of what he articulated and thus we will focus this response on the last portion of his remarks. As George Box (1979) put it, “All models are wrong, but some are useful,” and we hold this aphorism to be especially apt for the economic analysis of policy-relevant problems. Mindful of this, our own efforts to understand U.S. biofuel policies, starting with Lapan and Moschini (2009), have focused on parsimonious competitive equilibrium models that embed the relevant market failures, a structural representation of Renewable Fuel Standard (RFS) mandates, and an open-economy view of the agricultural and energy sectors. Still, the inevitable tradeoff between realism and tractability requires modeling choices. One of these relates to the substitutability between ethanol and fossil gasoline, and the relevance this has with the so-called blend wall. Our model treats all blends of ethanol and gasoline as perfect substitutes in consumption (in energy-equivalent terms), a choice that we discuss at length in the text (with reference to other studies that also adopt this perspective). Still, as noted by Just, the question arises as to whether it would be more desirable to model consumer demand in terms of two differentiated products: E10 (which can be used by all gasoline-powered vehicles) and E85 (only usable by flex-fuel vehicles).PubDate: 2017-09-11DOI: 10.1093/ajae/aax055Issue No:Vol. 99, No. 5 (2017)

Authors:Bellemare MF; Çakir M, Peterson H, et al.Pages: 1148 - 1158Abstract: According to the Food and Agriculture Organization of the United Nations, one-quarter to one-third of all the food produced worldwide is wasted. We develop a simple framework to systematically think about food waste based on the life cycle of a typical food item. Based on our framework, we identify problems with extant measures of food waste and propose a more consistent and practical approach. In so doing, we first show that the widely cited, extant measures of the quantity and value of food waste are inconsistent with one another and overstate the problem of food waste. By misdirecting and misallocating some of the resources that are currently put into food waste reduction efforts, this overstatement of the problem could have severe consequences for public policy. Our framework then allows documenting the points of intervention for policies aimed at reducing the extent of food waste in the life cycle of food and the identification of interdependencies between potential policy levers.PubDate: 2017-06-19DOI: 10.1093/ajae/aax034Issue No:Vol. 99, No. 5 (2017)

Authors:Qi D; Roe BE.Pages: 1159 - 1171Abstract: Many countries strive to reduce food waste, which deprives hungry people of nutrition, depletes resources, and accounts for substantial greenhouse gas emissions. Composting and other food waste recycling technologies that divert food waste from landfills mitigate the environmental damages of food waste disposal and have grown in popularity. We explore whether consumer knowledge that the environmental damage created by their food waste will be mitigated by recycling technologies undermines personal food waste reduction behavior. Subjects in a dining situation are randomly assigned whether or not they receive information about the negative effects of landfilling food waste and whether they are told that uneaten food from the study will be composted or landfilled. We find that providing information about the negative effects of food waste in landfills significantly reduces the total amount of solid food waste created when compared to a control situation that features neither a food waste reduction nor a food waste recycling policy. However, if subjects are also informed that food waste from the study will be composted, the amount of solid food waste generated is significantly greater than if only the food waste reduction policy were implemented. This suggests a crowding out effect or informational rebound effect in which promoting policies that mitigate the environmental damages of food waste may unintentionally undermine policies meant to encourage individual consumer food waste reduction. We discuss key policy implications as well as several limitations of our experimental setting and analysis.PubDate: 2017-09-06DOI: 10.1093/ajae/aax050Issue No:Vol. 99, No. 5 (2017)

Authors:Debnam J.Pages: 1172 - 1187Abstract: Early evidence from household-level surveys suggests that the one-cent-per-ounce tax on sugar-sweetened beverages that took effect on March 1, 2015, in Berkeley, California, has decreased consumption of sugar-sweetened beverages dramatically. Even if these findings are robust, the public policy implications of expanding the Berkeley soda tax policy to a national level are complicated by selection effects inherent in the populations of both voters and consumers. We find that consumption responses related to the tax interact nontrivially with consumer heterogeneity. Some of these responses directly counter the public policy goals of a soda tax. For example, high-consuming households are less price sensitive and therefore less responsive to price changes following a tax. Further, “reactance” among high-consuming populations led to increases in soda consumption immediately following the passage of the tax, partially mitigating reductions in soda consumption.PubDate: 2017-09-06DOI: 10.1093/ajae/aax056Issue No:Vol. 99, No. 5 (2017)

Authors:Janzen JP; Adjemian MK.Pages: 1188 - 1207Abstract: The United States may be losing its leadership role in the world wheat market. Rising trading volume in foreign futures markets and shifting shares of world trade are suggested as evidence of this shift, but neither necessitates that futures markets in the United States are any less important for wheat price discovery. This paper applies high frequency pricing data and market microstructure methods, including the Yan and Zivot (2010) information leadership share, to estimate the proportion of price discovery occurring in wheat futures markets associated with Chicago, Kansas City, Minneapolis, and Paris. We find United States futures markets remain dominant, although the share of price discovery for the Paris market increased noticeably in 2010, coinciding with major supply shocks in Russia and Ukraine. Prior to August 2010, 91% of information about the common fundamental value of wheat was first revealed in United States futures markets in an average month. After August 2010, this share dropped to 75%.PubDate: 2017-08-22DOI: 10.1093/ajae/aax046Issue No:Vol. 99, No. 5 (2017)

Authors:Fleming P.Pages: 1208 - 1227Abstract: This article analyzes the effect of agricultural cost sharing for cover crops on the acres of three conservation practices. A survey of farmers from Maryland is used to estimate the direct effect of cover crop cost sharing on the acres of cover crops, and the indirect effect of cover crop cost sharing on the acres of two other practices: conservation tillage and contour/strip cropping. A two-stage simultaneous equation approach is used to correct for voluntary self-selection into cost-sharing programs, and to account for substitution effects among conservation practices. Using model parameters from the U.S. Environmental Protection Agency’s Chesapeake Bay Program, the estimated effects of cost sharing are then translated to pollution reduction in order to quantify water quality benefits. The results indicate that the large cover crop cost sharing effort in Maryland had considerable effects on cover crop acreage, substantially reducing nitrogen and phosphorus runoff. Moreover, after accounting for the indirect effects on conservation tillage, the cost per pound of phosphorus abatement in the Chesapeake Bay decreased by between 60–67%.PubDate: 2017-08-07DOI: 10.1093/ajae/aax040Issue No:Vol. 99, No. 5 (2017)

Authors:Newburn DA; Ferris JS.Pages: 1228 - 1245Abstract: We analyze the potential effects that a unique forest conservation regulation has on residential development, and assess the additionality in forest cover due to this regulation. We combine panel data on forest cover change from satellite imagery and parcel-level modeling on residential development, including residential subdivisions occurring before and after the regulation is adopted. Our results suggest that after adoption, there was a 21% increase in forest cover within subdivisions relative to the amount without the regulation. The heterogeneous effects of this regulation suggest that on average, forest cover increased for parcels with lower levels of existing forest cover. However, parcels with the highest levels of forest cover continue to have significant decreases in forest cover, despite the regulation, thereby resulting in fragmentation in regions with the most intact forest cover.PubDate: 2017-08-14DOI: 10.1093/ajae/aax038Issue No:Vol. 99, No. 5 (2017)

Authors:Asche F; Oglend A, Selland Kleppe T.Pages: 1246 - 1264Abstract: This paper demonstrates a mechanism by which environmental shocks in biological production processes can lead to extreme price movements and thus be a contributing factor to short-term food price volatility. In biological production processes, environmental shocks can lead to a stock-out when the harvest transitions to a new stock (year class) with a different marginal value. The result in the market is a temporary price spike, or bubble, bounded by the marginal value of the new stock. We highlight this phenomenon in a cohort, or year class, biological production setting. Each year class in the model is a finite “non-renewable” capital stock, and capital theory is used to solve for the stochastic dynamic competitive equilibrium. The model is parameterized to be representative of the Norwegian salmon aquaculture industry. Results suggest that the model can replicate much of the observed patterns in price, harvest, and capital stock dynamics, including the infrequent occurrence of extremely high prices in the market.PubDate: 2017-09-06DOI: 10.1093/ajae/aax048Issue No:Vol. 99, No. 5 (2017)

Authors:Anderson BC; Sheldon IM.Pages: 1265 - 1286Abstract: We examine the role of fixed costs in research and development (R&D) in the market for genetically modified (GM) corn seed. In a mixed model of horizontal differentiation by genetic traits and vertical differentiation by productivity, we derive the empirically testable lower bounds to R&D concentration when R&D investments and market entry are jointly determined. When R&D investments translate into higher product quality, industries are said to be characterized by endogenous fixed costs such that the lower bound to R&D concentration increases with market size, but is less than the lower bound to market concentration based on sales. Using data on field trial applications of GM corn seed, we estimate the lower bound to R&D concentration, and find evidence of endogenous fixed costs with R&D concentration that is significantly greater than perfectly competitive levels. These endogenous fixed costs imply that concentration in the agricultural biotechnology industry is occurring due to the nature of R&D investment in product quality and not through anticompetitive practices. Adjusting for past merger and acquisition activity significantly raises the lower bound for infinitely-sized markets, but has no impact upon current market sizes, implying the industry may still undergo additional consolidation.PubDate: 2017-08-22DOI: 10.1093/ajae/aax036Issue No:Vol. 99, No. 5 (2017)

Authors:Thompson NM; Brorsen B, DeVuyst EA, et al.Pages: 1287 - 1306Abstract: Genetic testing is one way that feeder cattle producers can credibly signal quality to buyers. However, quality signaling in the presence of asymmetric information typically requires paying measurement costs. Given that previous research has indicated that the value of genetic information is generally not enough to offset the current cost of testing, we evaluate random sampling as a strategy to reduce the overall cost of testing. An economic approach to sample size determination is introduced utilizing a Bayesian decision theoretic framework to balance the expected costs and benefits of sampling. Data from 101 pens (2,796 animals) of commercially-fed cattle are used to empirically evaluate optimal sampling. Assuming profit is linear (nonlinear) in genetic information, results indicate that at the baseline parameter values an optimal sample size of nine (five) out of 100 animals generates returns from sampling of $7.87/head ($5.96/head). Sensitivity analyses indicate that the degree of asymmetric information (absolute difference between seller and buyer prior expectations of quality) is the major driver of the overall results. The results provide strong evidence that random sampling generates benefits that far exceed the costs.PubDate: 2017-08-23DOI: 10.1093/ajae/aax039Issue No:Vol. 99, No. 5 (2017)

Authors:Mitchell T.Pages: 1307 - 1326Abstract: This article investigates an important channel through which access to information about market prices could increase the prices that producers receive from middlemen. I develop a model of trade between a farmer and a middleman, allowing for middlemen to differ in terms of their social preferences, and provide an empirical test of the theory using a framed field experiment carried out in India. The model predicts a non-monotonic relationship between the benefit of information and the cost of switching to a new middleman. I find that actual middlemen do differ with regard to their social preferences, and that the benefit of information to the farmer varies with the cost of switching. While it is not possible to confirm a non-monotonic relationship between the benefit of information and the cost of switching based on these data, the results are consistent with the predictions of the model.PubDate: 2017-06-22DOI: 10.1093/ajae/aax035Issue No:Vol. 99, No. 5 (2017)

Authors:Yvette Zhang Y.Pages: 1327 - 1343Abstract: This paper proposes a density ratio estimator of crop yield distributions, wherein the number of observations for individual distributions is often quite small. The density ratio approach models individual densities as distortions from a common baseline density. We introduce a probability integral transformation to the density ratio method that simplifies the modeling of distortion functions. We further present an implementation approach based on the Poisson regression, which facilitates model estimation and diagnostics. Monte Carlo simulations demonstrate good finite sample performance of the proposed method. We apply this method to estimate the corn yield distributions of ninety-nine Iowa counties, and to calculate crop insurance premiums. Lastly, we illustrate that we can employ the proposed method to effectively identify profitable insurance policies.PubDate: 2017-04-11DOI: 10.1093/ajae/aax021Issue No:Vol. 99, No. 5 (2017)

Authors:Dillon B; Dambro C.Pages: 1344 - 1361Abstract: During the structural adjustment era of the 1980s and 1990s, governments across sub-Saharan Africa generally withdrew from crop markets to encourage entry by private traders and foster competition. Since that time, the degree of competition in crop markets has been a central concern of policymakers, donors, and researchers. We review the evidence on that topic by first developing a conceptual framework to guide our analysis, then discussing the findings from four categories of literature. We have two main findings. First, there is a paucity of empirical evidence on this question, which hinders our ability to draw strong conclusions. Second, that point notwithstanding, the evidence that does exist is broadly supportive of the notion that crop markets are competitive. The dominant themes in the literature are that trading profits are highly variable, trader entry and exit rates are high, and price co-movements between markets suggest relatively efficient levels of competitive arbitrage. It is possible that the high costs of entry foster non-competitive conditions at the level of large-scale, long-distance subnational trade, but we find no positive evidence to that effect, only the satisfaction of certain necessary conditions.PubDate: 2017-08-16DOI: 10.1093/ajae/aax044Issue No:Vol. 99, No. 5 (2017)

Authors:Gobin VJ; Santos P, Toth R.Pages: 1362 - 1383Abstract: We examine the short-to-medium-run impacts of the Rural Entrepreneur Access Program, a poverty graduation program that promotes entrepreneurship among ultra-poor women in arid and semi-arid northern Kenya, a context prone to poverty traps. The program relies on cash transfers (rather than asset transfers) in addition to business skills training, business mentoring, and savings. Participation in each of the program’s three rounds was randomly determined through a public lottery. In the short-to-medium-run, we find that the program has a positive and significant impact on income, savings, and asset accumulation, similar to more traditional poverty graduation programs that rely on asset transfers.PubDate: 2017-07-25DOI: 10.1093/ajae/aax037Issue No:Vol. 99, No. 5 (2017)